Tax Notes reporter Nathan J. Richman talks with outgoing IRS Criminal Investigation division Chief Don Fort about his decades-long career with the tax agency, his plans for retirement, and the future of the division.
This post has been edited for length and clarity.
Nathan Richman: Thanks for joining us, Don.
Don Fort: Good afternoon. Thanks for having me.
Nathan Richman: Let's start off pretty simple. Tell us about yourself. You're about to leave the IRS and the Criminal Investigation (CI) division after how many years?
Don Fort: Almost three decades. I started in the summer of 1991. I got the job right out of college and have been at it now over 29 years. When I studied accounting in school, I wasn't sure what I wanted to do. My father-in-law was actually a career-long civil servant with the IRS and was actually the one who turned me on to a recruiter at IRS CI. He worked there for 37 years. I started in the Baltimore field office and did most of my special agent time in Washington, D.C.
Nathan Richman: There have been several interesting changes during your tenure as chief. I'm thinking about things like the Nationally Coordinated Investigations Unit (NCIU), the Joint Chiefs of Global Tax Enforcement (J5), and the changes in the identity theft wars.
Let's start with the NCIU. Can you tell us about that?
Don Fort: We had a major role in the vision for the NCIU. The overall vision was there are areas of tax noncompliance that impact every judicial district, and in many cases, every ZIP code. Things like payroll tax fraud and employment tax fraud. There are civil and criminal cases in virtually every ZIP code around the country.
What we were really lacking was a mechanism to develop referrals in-house in CI and send them out to field offices. Some field offices may have gotten some broad referrals. They may have been self-developing payroll tax fraud cases. But you had whole parts of CI field offices that didn't have any of those cases.
The idea was really to create a unit that could develop and supplement the case development work of field offices. We've struggled with this over the years. This is not a new challenge that we faced. The shift that I took the NCIU was the challenges we had in the past were really headquarter-centric. It was headquarters sending field office leads that were never successful.
The NCIU was embedded in the field under a director of field operations, which is a first-line executive for CI. This started as a pilot and was met with a lot of skepticism by the field offices. Most people have been around long enough and seen that we haven't been successful in deploying this model.
One of the things that I really attribute to the success of the NCIU was that I was kind of the one that had the vision of, "This is what it's going to look like. I think this is the thing that's going to make it successful." But it was the selection of the right personnel to stand up and really execute on the vision. We have had a string of outstanding leaders in the NCIU. We knew early on that the success was going to be predicated on first 10, 20, 30 referrals.
We figured if we can make the first referrals that field offices got so strong, then there's no way that a special agent could say no to the case. That's really what they did. They really went above and beyond in developing great fraud referrals that were sent out to field offices. We got tremendous feedback from agents. Then we got to the point where agents were asking for more. It has been really successful.
That's really kind of the cornerstone project that I think tipped the NCIU over the top: the model and the algorithm we built to address employment tax fraud. We partnered with the research arm within the IRS, which has a lot of really smart data scientists and other folks that really understand how to leverage the enormous amounts of data, coupled with special agents and other professional staff within CI.
It took eight or nine months to perfect this model, but we used data that is housed within the IRS. We're able to identify significant areas of noncompliance in the employment tax area. To date, we've sent out about 100 referrals to most of our field offices dealing with employment tax. The average tax loss in those cases is close to $3 million. They're very significant cases. It really employed that vision of trying to get referrals out to field offices that maybe didn't have as strong of an employment tax inventory as the other offices.
The one way we often gauge success when we're looking at a project like this is ultimately indictments, information, convictions, and things like that. But it takes years to work these cases. We're only now starting to see cases where we're sending the referrals into the Department of Justice tax division. We'll soon see indictments and more judicial actions as time passes. They're doing fantastic work.
It's gone from a pilot three years ago to now being a permanent structure. We're actually in the process of trying to figure it out as a permanent structure, as part of CI, where it truly belongs and where it will continue to kind of thrive as a development and referral arm for CI.
Nathan Richman: In addition to the NCIU, is there any other way CI goes about looking for new issues for scrutiny? Is there a process for anticipating new potential problem areas?
Don Fort: There's a number of different ways. I think this is an area we're getting a lot better at. We're building closer relationships with our civil counterparts.
Often it is the civil examiners, whether it's a revenue officer or a revenue agent in the Large Business and International Division or Small Business division, that's conducting audits. They may see the beginnings of an issue of noncompliance.
I don't have a specific example, but the connections we're trying to make within the operating divisions are tighter and closer than they've been certainly in my tenure. That's one of the ways is trying to figure out if there's an emerging area of noncompliance.
We also do the same within CI. If one particular field office is seeing an issue that is unique to them, more than likely it's already existing in another field office or it will exist soon.
Ultimately, it's not fully built out yet, but the idea is that the NCIU would eventually have enough capacity for at least a portion of it to be research and development. If they got an area that looked like it was an emerging issue, they could apply some resources to it. Do it a little bit of research. Maybe reach out to the civil side. Determine what may be out there to kind of alert the field offices in terms of what they may be seeing.
There are a lot of different kind of efforts underway in addition to what's being done at the NCIU.
Nathan Richman: You mentioned the J5. Can you tell us what that is?
Don Fort: This is my counterparts from the United Kingdom, Australia, the Netherlands, and Canada. In November 2017 the five of us, in addition to probably a hundred other heads of tax agencies around the world, met as part of the OECD. There was a call of action out of that OECD meeting for the countries to think outside the box and do more.
Having built up a mutual trust, knowing the chiefs from these other countries, and having there be some similarities in our tax systems and the various threats to our tax systems, we all came up with this idea that we were going to try to bring that things down to a smaller level.
The idea was there would be the five chiefs and no chief would be in charge. We designed it that way on purpose. We were going to pilot this idea that it would be the chiefs and very few individuals involved in supervision. This would cut out many, many levels of middle management to see if we could get our countries working closer together, sharing information, best practices, and ultimately working on some investigative matters that may be of interest to more than one of the J5 countries.
Looking back on the last two years, it's been way more successful at this point than I expected, but in a different way. I talked about how long these investigations take. An average investigation from the start, when an agent starts working it to when it gets referred to the Department of Justice, is roughly two years. As the case becomes more complicated, and if there's international issues, you typically can add another six months to a year. It typically would take two to three years to make a recommendation to the Department of Justice on one of these cases.
I think we had unrealistic expectations at the beginning that we would see a lot of investigative success in the initial years. There's many investigations that we have in the United States that have stemmed from work that we've done as part of the J5. But what's been more impressive is to see the relationship blossom between the frontline employees. The sharing of ideas and sharing of technology that may be open source technology for one country that another country can utilize — that type of level of sharing.
We've employed some different techniques that one or more of the countries use that we've never used before. In particular, we've done two challenges. One we did in the Netherlands was around technology and looking at professional enablers that may be peddling their wares to more than one J5 country. We took investigative leads from that challenge in addition to actual computer programs being built during that challenge. It really is taking the smartest personnel from each country, giving them a task or challenge, locking them in a room, and seeing what they come up with without a lot of managerial oversight.
We another challenge in November in Los Angeles. That challenge was specifically focused at virtual currencies and cryptocurrencies. Again, we came out of that on the U.S. side with many leads that are either under investigation now or we've moved on from them.
It's been a really successful concept. The old school model was you have an attaché, that attaché sits in a foreign country, and there's very strict delineated rules in terms of who they communicate with. This has gotten many, many more individuals involved working together and dealing with each other on a weekly basis.
Again, this started two years ago really as a pilot to see if it would work out. Now, at least on the U.S. side, we're in the process of making it a permanent part of our international operations structure and part of our international strategy. It's gone beyond just the handful of people that were involved in the J5 initially to many, many more agents, investigators, and professional staff involved.
Nathan Richman: You mentioned that at least CI is starting to make this permanent. Anything else in what's next for the J5?
Don Fort: We went for the better part of two years with no turnover at the chief level. About nine months or so ago, we all challenged each other that we were at a crossroads and trying to determine whether or not this was going to be a viable structure.
Now, we're at the point that we've all determined that it is a viable structure, and we've had some turnover at the chief level. Myself, the head of the agency in the Netherlands, and the head of the agency in Canada have all moved on. That's 60 percent of the chiefs within the last year that have turned over.
Again, the challenge was this has to outlive the five chiefs. It has to be bigger than just the chiefs of the agency. All of the countries are really moving to put it in a permanent structure and apply the right resources to it, but there's a lot of outstanding work going on on the investigative side also.
Nathan Richman: Anybody considering the possibility of a J6 or a J7?
Don Fort: No, because it's still relatively early on. We're just in the process of making the structure permanent. As something like this gets bigger, it becomes more and more unwieldy.
One of the challenges I think we all underestimated when we started was we looked to each other, we thought we were very similar. But, as you really start to dig into the details, in terms of what each agency has jurisdiction over, what the privacy laws are, what the disclosure laws are, there's a lot of differences. Each country is a little bit different. Maneuvering through that took a lot of time.
There is some interest from some of the other countries. I think that will be one of the challenges that lays ahead for the J5, after things get settled and the new chiefs get in place becomes a permanent structure. Is there room to expand and which countries would potentially be additional partners for a J5-type effort?
Nathan Richman: Moving on to some of the inter- and intra-agency relations, what's it been like at CI since Commissioner Charles Rettig, a criminal tax defense attorney, took over the IRS?
Don Fort: I've known Commissioner Rettig for many years, predating the beginning of his term as a commissioner of the IRS. As a criminal defense attorney, he was always supportive of the work that CI does, even when he was on the defense side. He has been extremely supportive.
We've been fortunate to have a number of commissioners now that have been really supportive of the work that CI does and understand the idea that you can go to jail for a tax crime really provides that backbone of volunteer compliance and the deterrence to the overall tax system. He has been very supportive.
We've been more actively involved in all IRS business whereas maybe in some past years we weren't as involved. But Rettig made sure when he came in that CI always had a seat at the table.
One of the things that I'm disappointed in this year was that it was supposed to be the first year that we had put through about 10 special agent classes. it would have been over 200 new special agents. Obviously, that came to a halt, just like everything else with the pandemic, and it'll pick up next year. But that's no small feat — getting that approval from the commissioner and the deputy commissioners to be able to put on that many classes of special agents.
That plan unfortunately fell apart this year, but we'll pick up next year with the commitment. Everything is always dependent on the budget, but a tentative commitment that hopefully there'll be 200 plus special agents trained next fiscal year.
Nathan Richman: Speaking of personnel moves, CI has had some notable people leave in the last year or so — and I don't mean just you. Where have they gone and what sorts of effects do you see those moves having for CI?
Don Fort: I'm sure you're referring to Eric Hylton, who was my deputy for several years and moved on to be the commissioner of the Small Business/Self-Employed Division, as well as Damon Rowe, who held a number of positions with CI. The last position he held was the director of international.
I'm incredibly proud of both of them. They had long and storied successful careers in CI, particularly Eric going from being the deputy chief to running this massive and incredibly important organization in SB/SE. I think it's a testament to the commissioner's support of CI and his understanding that mixing things up and mixing some of the talent from different operating divisions into other operating divisions.
On the Damon Rowe side of setting up and standing up this new Office of Fraud Enforcement, I think time will tell. I think it's a fantastic idea. I have spoken for many years about the need for rebuilding and enhancing the fraud referral program.
I have thought the first case I ever worked as a special agent was a fraud referral from a revenue agent in exam. That was the way most agents started their career, which was a bread and butter legal source tax case. For a number of reasons, probably the most significant reason is just a lack of resources to hire and bring on new revenue agents, the numbers of fraud referrals really declined drastically.
I believe that the best strong legal source tax cases would likely come from SB/SE and LB&I examiners as well as SB collection officers because they're the ones that often see the issues first. I think it's a step in the right direction. I know they really hit the ground running. There's a lot of different projects going on.
You asked about trying to deem the emerging issues and things like that. I think that now really strong relationship between some of our executives and some of the executives in that office is going to yield tremendous fruit in the coming years.
Nathan Richman: How about any other further collaborations planned? Are there maybe IRS rearrangements or any thoughts of cooperative endeavors with something like the FBI or Drug Enforcement Administration? Anything like that?
Don Fort: There's a lot of great collaboration going on. Thankfully, we already had really strong relationships because we were able to very early on in the pandemic team up with our key partners — the FBI, the DEA, and Homeland Security Investigations (HSI).
There's a lot of great collaborative efforts that are going on around the pandemic fraud, not just in Washington, D.C., but in most field offices around the country. There's various task forces that have been set up to address fraud and we're involved in virtually every single one of those.
Nathan Richman: Speaking of pandemic, how has the pandemic affected CI's work, both on the operational level and on the procedural level?
Don Fort: I think like everybody else, in March we went from everybody working in an office to, within the course of a week, everybody working at home. Thankfully the IRS has a really strong IT infrastructure. Everybody in CI has laptops. Within the course of literally a matter of days, everybody was set up working at home. There was no delay at all in terms of mobilizing the forces remotely. Our first concern, obviously, was the health and safety of our employees.
Then, as the economic packages went out, the concern shifted. Based on history, as soon as a package like that goes out that's designed to help the vulnerable or the businesses that may be at risk in a situation like this when they have to close down, unfortunately the fraudsters come out of the woodwork. Our first endeavor was a PR endeavor to really try to get the word out to individuals and businesses that there are fraudsters out there. Watch your email. Watch your texts. Make sure you don't fall prey to phishing schemes and things like that. We did well over 100 interviews around the country trying to get the word out.
The next phase obviously was mobilizing the forces to address the fraud, including joining up with the DOJ [Use OK? TA Style does not encourage DOJ] task forces here in D.C. and teaming up with HSI, FBI, other law enforcement partners, and the various task forces that are ongoing around the country.
We recognize that the job of an IRS special agent is a field job. It is not a desk job, even when there's not a pandemic. With the level of fraud that we're seeing, and I think you're seeing now every day that goes by, there are several more significant pandemic-type frauds, whether it's a Payment Protection Program fraud or a fake mask, cure, or vaccine one. Many, if not most, of those cases IRS CI is involved with. We can't take off five or six months while this fraud is going on. This is largely financial fraud.
We have stepped up to lead many of these investigations and task forces. I give the agents, the field offices, and the leadership a tremendous amount of credit because it's still, in many parts of the country, a very dangerous environment out there. It varies depending on where you are geographically. But having conducting interviews outside with masks and coming up with a plan to actually execute and conduct investigations.
The part that made it more challenging in this situation is I couldn't just issue an edict that on this day we will go back to the office or do investigations, because every single jurisdiction is slightly different in terms of what the level of risk is. The leaders in our field offices and our agents really stepped up and have done a great job.
Agents are out in the field. They have been for months. It's more about making sure that we are accomplishing our mission as IRS CI and less about where the work is physically being performed.
Nathan Richman: Thank you very much for your time. It's been very interesting.
Don Fort: Yes. Appreciate it. Thank you very much.